Property investors, both local and foreign, are often blamed for the soaring property prices in Australia as well as in many of the world’s mega cities. One category of investors that has taken a hit lately are the foreign real estate investors whose concentration of investment in the Sydney area real estate market has seen the prices in this market spike in the recent past.

The Australian government is currently seeking federal policy solutions to property speculations. Suggestions has been made that the residential property should be off the table when it comes to property speculation. But are property investors really to blame for the spike in property prices or are they just an easy target?

A closer look at the drivers of the Australian real estate market shows that property investors are only partially responsible for the spike. Several factors have been putting pressure on the real estate market in the recent years. These include overpopulation, high costs of property transactions, low supply of homes and the low interest rate regimen which is driving more speculators into the Australian real estate market. This combination of factors has been the key driver in the property prices in major Australian cities in the recent years and they have created the “perfect storm” that many homebuyers are currently experiencing.

The Low Interest Rate Factor

The biggest impact, however, has been as a result of the low interest rate regime in the Australian market. It has had an even bigger impact than the inflow of foreign investment, which though visible, has a tiny effect on the overall market prices of properties across Australian cities.

The low interest regimen has created a situation where property investment is currently one of the most lucrative investments in Australia. Anyone who can buy is sinking their money into property and this has in turn pushed up the overall property prices.

The situation is exacerbated by the fact for the first time in a very long time, the present demand has outstripped new building constructions. As a result, it is mostly the existing properties that are exchanging hands.

The Impact of Foreign Investors

The impact of foreign investors has mostly been surfaced in the apartments market but it has had little impact on the prices of houses. The fact that house prices have risen at a faster rate than apartment prices also shows that the foreign investments have had little impact on Australian real estate market. Most of the demand has been local and it is this that is driving up the prices in the Australian real estate sector.

Slow Rate of Construction

For the first time in decades, the Australian real estate sector is also plagued by an under-supply in newly constructed homes. That means the existing homes have seen a heightened demand and with the low interest regimen, the sector will continue seeing a boom cycle, particularly in the major cities.